MADRID—Investment in the Spanish hotel sector set a record again in 2018 with international and domestic investors plowing €4.8 billion ($5.5 billion) into existing hotels, properties for conversions and plots for development, Colliers International Spain said during a presentation reviewing 2018 and setting the likely parameters for 2019.

“Spain is in the sweet spot right now, and there’s a huge appetite for hotel investment,” said Colliers International Spain’s director for hotels, Miguel Vázquez, who noted investment in 2018 was up by 23% over the previous year.

“We knew 2018 was going to be a good year, but we had no idea it was going to be that good,” Vázquez added, crediting Spain’s flourishing tourism industry and its healthy emergence from the economic crisis of a decade ago.

While final visitor statistics for last year have yet to be published by the Spanish government, the number of foreign tourists is believed to have reached 81.2 million, or around the same numbers as for 2017, which is the current record year for arrivals.

International investors led the hotel-sector charge, spending €3.4 billion ($3.9 billion), accounting for 71% of the total investment, while domestic players invested €1.3 billion ($1.5 billion).

Blackstone’s purchase pushed North America to the top of the international investors’ list with purchases worth a total of €2.5 billion ($2.9 billion), Vázquez said, followed by Europe at €1.5 billion ($1.7 billion) and Asian investors with €494 million euros ($569 million).

The Middle East was a distant fourth at €169 million ($194 million).

US chargeBy country, the U.S. was the leading investor (again thanks to Blackstone), followed by Thailand and Mexico, Vázquez said.

“Blackstone’s move is very interesting because it will spark interest by other international investors,” Vázquez said.

Among international chains active in Spain last year, Minor Hotel Group of Thailand, Greece’s Ikos Resorts and the United Kingdom’s Thomas Cook made significant investments in 2018, contributing to the total of €512 million ($590 million).

Last year’s record investor interest placed Spain in second place among European hotel investment targets after the U.K., Vázquez said.

“This is the first time Spain is in that position, and we knocked Germany off the number-two spot,” Vázquez said.

Vacation properties, mostly in Canary and Balearic island resort destinations, accounted for 66% of total investment, slightly off 2017’s 69%, while the urban sector was up 3% over last year to 34%.

“Spanish vacation destinations continue to attract the most money, and we expect that to continue this year,” Vázquez said, but he warned “Spain’s sea-and-sun rivals like Turkey, Tunisia and Egypt are becoming a threat by offering good value for money.”

“We also saw that investment spread to some extent last year in Spain. While it contracted in Barcelona and Málaga, it expanded in Madrid, the Canaries and the Balearics, and in other provinces,” Vázquez added.

Madrid on fireIn the age-old rivalry between Madrid and Barcelona, the Spanish capital was the easy winner with €632 million ($728 million) in investment in existing hotels and converted properties, or almost three times that of the Catalan capital at €232 million ($267 million).

“Madrid’s on fire!” Vázquez said. “It’s becoming more and more a major leisure destination while maintaining its position as a business destination.”

“The big luxury brands like W (Hotels), Four Seasons (Hotels & Resorts), Mandarin (Oriental) and Hard Rock (International) are setting up in the city, and this will draw in even more investors,” Vázquez said.

Vázquez added Barcelona’s hotel investment scene has been hampered by the ongoing political wrangle over Catalan independence and the restrictions on new hotel development imposed by city government.

“Barcelona remains a great tourist destination, but I think many investors are adopting a wait-and-see attitude and investing there could be a tough decision to make,” Vázquez said.

“It could be a good idea to buy up a small hotel in the city center, which will always be full, but taking on a big convention hotel might be another story,” Vázquez added.

Vázquez described the current investment environment in Spain as “really exceptional” and said that while it remains very attractive, especially the vacation sector, the market is bound to correct itself.

“In short, things will be getting back to normal,” Vázquez said.

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